Passage AI

AI/NLP’s Role in Operational Effectiveness for Private Equity Portfolio Companies

Private equity (PE) has been consistently outperforming other asset classes and has played an ever increasing role in reshaping global industries. According to the 2017 Bain & Company’s Global Private Equity Report, in 2016 PE firms raised $589B and the buyout dry powder reached an all-time high of $534B, while the average US acquisition multiple (purchase price to EBITDA) rose to its highest level of 10.9 in the third quarter of 2016. The report further identifies that more than two thirds of portfolio companies did not achieve projected EBITDA margin expansion over the holding period. Finding and tuning the additional cost reduction levers continue to be high on the list of priorities.

A typical Private Equity firm has portfolio companies operating in a variety of industries and verticals. In addition to functions such as finance, HR and IT among the companies across various verticals, customer support has similarities within two key categories — consumer and business. A PE company can leverage the commonalities in each of the consumer and business segments and can streamline operational effectiveness. Customer service has become a major part of the value proposition in today’s hyper-connected digital world. Users expect seamless, frictionless and instant answers and resolutions to their questions and problems. The contact center industry has evolved from an onshore human customer service agent model to a hybrid onshore and offshore model to the use of omnichannel solutions. Though this evolution has certainly helped improve productivity and reduce costs, it still scales up only linearly with the number of calls. For PE firms looking to contain costs while increasing customer satisfaction scores, limiting the trajectory of the linear scale up of costs is an attractive option.

One of the avenues by which PE portfolio companies can achieve the desired scalable cost structure is to implement automated chatbots that would supplement customer service representatives for an experience commensurate with the digital age expectations. Powered by an AI/NLP (artificial intelligence/natural language processing) engine, chatbots offer instant gratification to customers by providing immediate responses, provide expanded hours of customer support availability and a higher quality customer experience. In addition, it allows the company to handle heavy call volumes during peak seasons — for example, between Thanksgiving and New Year for e-commerce, retail companies and brands.

We believe that an AI/NLP-based, well trained and trainable text and voice-based conversational chatbot would address many of the challenges faced by the customer support teams. Support over multiple platforms such as the desktop or mobile web, messaging platforms such as Facebook Messenger, WeChat and voice assistants such as Amazon Echo and Google Home would enable vast coverage and frictionless and ubiquitous access for users. By integrating seamlessly with various IT systems through webhooks such as REST APIs (Representational State Transfer Application Programming Interfaces), the resulting solution becomes a very powerful and an effective communication tool.

In our experience of rolling out AI/NLP conversational interfaces for Global 2000 companies, we find a number of common elements within a vertical such as retail, online education or broadband/wireless service provider. For example, many of the intents that most users would interact with the business are the same for various companies in that industry. On the other hand, there are commonalities among the service paradigm, SLAs (service level agreements) and interfaces with IT systems across the portfolio companies of a private equity firm. Though PE portfolio companies typically are in various stages of IT integration, their goal is to have a consistent and uniform experience over time. In addition, a private equity company can leverage economies of scale in implementing a chatbot solution to enhance customer experience across its entire portfolio. By combining the best of human power and AI power, Private Equity portfolio companies can reduce costs and improve customer experience significantly, while allowing the PE firm to have a cost-effective and consistent service offering.